Assessing the anchoring of inflation expectations

This paper proposes a new approach to assess the degree of anchoring of inflation expectations. We extend the static setup of the predominant news regressions by introducing exponential smooth transition autoregressive dynamics. Our approach provides estimates of a market-perceived inflation target as well as the strength of the anchor that holds expectations at that target. A cross-country study based on a new data set of daily break-even inflation rates for the US, EMU, UK and Sweden shows that the degree of anchoring varies substantially across countries and expectations horizons.